The sharp revival in the Indian stock markets has already fuelled the fund raising activity of India Inc. The first two months have seen close to $1 billion worth of funds being raised through five issues- 3 qualified institutional placement (QIP) and 2 overseas issues, according to data collated by Prime Database. The quantum of funds raised is almost five times of what was raised in the April-May period last year.
There were 6-10 issues spread across IPO/FPO, rights and overseas issues in the same two months in 2008. These issues raised somewhere between Rs 747-1,000 crore. The exact quantum of overseas issues during these two months is not clear but there were 5 IPO/FPOs and one rights issue.
WHAT HAS CHANGED FROM 2008?
The big change which has come about within the last one year is the nature of equity issues which have been floated. Despite the market seeing a sustained rally over the last three months, there has not been a single IPO/FPO to hit the market yet. In contrast there were not even a single QIP in the first two months of last fiscal.
There have been just two new draft prospectus which have been filed with market regulator Sebi since April 1– Adani Power (revised draft) and South India-based electric vehicle firm Kabirdass Motor Company (backed by investments from BCCL).
It is to be seen whether merchant bankers advising firms would like to wait for the NHPC issue, which is expected in August, to be followed by OIL public issue, which is slated for September. A set of I-bankers say promoters want to go to the market now to ride through the positive investor sentiment, but others want to wait to see the response to NHPC issue, before going public.
There are a number of rights issues which are lined up and awaiting clearance from Sebi. These include Fortis, Infomedia 18, JMC Projects, Tinplate Company, Morarjee Textiles, Greycells Entertainment, Piramal Glass, Greenply and Television Eighteen. Besides these, there are other rights issues which are pending from the previous fiscal: Religare Enterprises, Perfectpac, High Energy Batteries, Natraj Ceramics & Chemical, Tebma Shipyard, Ramco Systems, Polytex, Futura Polyesters and Nouveau Multimedia.
QIPs – FLAG BEARER OF FUND RAISING ACTIVITY
In the meantime, the QIP market has seen a leg up. Infact QIPs have led the fund raising in the first two months with Unitech raising over Rs 1,600 crore in April followed by Rs 500 crore placement by PTC and the mega Rs 2,656 crore placement by Indiabulls Real Estate.
Many other firms (led by realty sector) have announced plans of floating QIPs. These include Gammon Infrastructure, GMR Infrastructure, HDIL, Sobha Developers, Parsvnath, JSW, Reliance Communications, Orbit Corp, LIC Housing Finance, Vishal Retail, Karnataka Bank, Essar Oil to name just a few.
The key reason for the choice of QIP over other fund raising tools is that it’s a less expensive mode of getting funds in a short span of time unlike other modes such as a rights or FPO. Secondly, many promoters have bought shares of their companies when the markets had crashed allowing them to raise their holding marginally. This gives them a leeway in diluting their shareholding in the process of a QIP.
QIP norms, which were changed last year, now price the issue based on the average price of the two preceding weeks. Since the market has seen a sharp uptick post general elections results, the average of the last two weeks would be close to the current price.
QIPs, which were introduced to allow easy and fast fund-raising tool for listed companies in 2006, is pitched as an alternative for companies looking at secondary listing in overseas markets. Given the state of affairs in the international markets, overseas issues maybe the last to revive as a mode of raising capital. This could also turn out to be a positive for Indian merchant bankers.